Tuesday, October 25, 2011

The Scariest Monster This Halloween

Mad political and dismal scientists worked behind closed doors in a fervent rush to create it. We were told we had to commit to the creation before we could see it. Now the work is finished and it is apparent that instead of formulating something good, they have created a very scary monster. This monster, Frankenturd, threatens to cause all sorts of terror and pandemonium.

Of course I am talking about the Patient Protection and Affordable Care Act (PPACA) – the Healthcare Bill. I am not going to refer to it by its more popular name because I want to keep the politics out of it. Nancy Pelosi said that we would have to pass this bill to find out what was really in it. This is similar to buying a mystery gift bag, but in this case when we opened the bag what we found is a turd.

It is an ugly, terrifying, monster, of a bill. The more we see of it , the uglier it becomes. The closer it gets to us, the more it smells.

Because many people have much political capital invested in the PPACA, they still try to convince us (and themselves) that it really isn’t that bad. But that doesn’t change the fact that it is still a turd. Yes it’s a turd, but it’s their turd.

Almost every week some new analysis of a provision of the PPACA finds something that is either unworkable, very expensive, or will wreak havoc on the current system. It is rumored that the authors of the bill wrote the provisions to be excessive because they expected them to be reduced in the final negotiations. Because the bill was rushed through, there were no changes. It just shot through untouched. In addition, there are some errors in the bill that have created bad loopholes. If people would have actually had time to read the bill (all 2,409 pages worth), these would have been corrected.

I don’t think anyone read (or understood) the entire bill before it was passed. And now we have some politicians that are screaming in horror because they voted to create a turd. A turd so hideous, so destructive, and so odorous.

This Frankenturd is so bad that two weeks ago they had to remove one of the smelliest parts. The CLASS program was supposed to have healthy young workers plow hundreds of dollars per month into a fund that would eventually pay nursing home bills for sick, old, people. This had absolutely no chance of working, unless of course you assigned Bernie Madoff to run the program.

The reason it made it into the PPACA to begin with is that it provided an accounting gimmick that made the bill appear more financially positive. They would collect all these great contributions ($70 billion worth) from the healthy, young people in the first five years, but not pay anything out in benefits. In Washington accounting speak that equals a $70 billion savings! Ba Ching! There are several more of these types of financial gimmicks in the bill.

Now that CLASS (what a classy name for a piece of turd) has been taken out, I do think that the true cost of PPACA should be recalculated. This should not be too difficult or costly. Step one: Take the existing number. Step two: subtract the $70 billion.

Secretary of Health and Human Services Kathleen Sebelius had to explain why CLASS was being stopped. I feel sorry for her every time she has to defend the PPACA. Her job has been reduced to a turd salesperson. She basically is married to the PPACA. Yes, she has become the bride of Frankenturd. I hope she showers after every press conference.

Of course all the Republican presidential candidates have promised to kill Frankenturd. But this is not good enough. Everyone knows this turd must be flushed. Even its creators understand it can’t live in its present form, but they don’t have the heart to kill it, after all it is their turd baby.

I do think the candidates need to tell us what plan they would come up with to improve the healthcare situation. The problems still remain: High costs, lack of coverage, pre-existing conditions, Medicare/Medicaid reform. These problems need solutions now.

Who would have imagined that we would need protection from something called the Patient Protection and Affordable Care Act? And who would have ever thought that tax payers can’t really afford it either? Sounds like a “1984” double play to me.

So far we have only gotten a whiff of what the PPACA will truly do. Unfortunately Frankenturd is the scariest thing you will encounter this Halloween. And no, that isn’t a Tootsie Roll in your beggar’s sack.

Tuesday, October 11, 2011

Look Out Elizabeth, Here Comes the Small One!

Recently ECRI (Economic Cycle Research Institute) announced that the U.S. economy was soon going into recession. This is a huge prediction. ECRI has the best business cycle model in the world. They are very accurate in predicting economic downturns. This negative forecast is supported by several other analysts citing various economic indicators that are signaling an imminent recession.

So this means the economy is definitely headed for recession, right? Not so fast “bear-boy”. There are other indicators that should be much more negative now if we are headed for a dip. And most importantly, the greatest investor in the world, Warren Buffet, says we are definitely not going into recession.

ECRI says definitely yes and Buffet says adamantly no. This is an economic smack down of epic proportion. The best model versus the best mind --- It’s on!

This is the mother of all mixed signals. To gain perspective it is important to remember how we got to this point. There was significant damage to the financial structure and credit markets. The housing industry suffered severe calamity. Layoffs spiked and the economic collapse created a structural unemployment problem. Because of all these problems and the severity of the recession, the recovery was expected to be long and slow.

We are getting exactly the recovery that was expected and the recovery that we deserve. This isn’t good enough for many commentators and news outlets that report a steady stream of negative economic news. The problem is that recessions have a psychological aspect. If you constantly tell people that the economy could go into recession, they stop spending money and it results in a recession. Consumer confidence numbers right now are terrible. So if we do go into recession, the negative atmosphere is probably was a contributing factor.

As I have previously stated, our slow recovery was further hurt by bad weather (snow, rain, hurricanes and tsunamis), bad gas (high prices), world uncertainty (the Arab Spring) and my big, fat, Greek default (possible). And we are being guided through the most tenuous economic situation in over 70 years by a president with no business experience, no business acumen and no business skills. Worse yet, he is either very stubborn or a slow learner (you make that call).

The recent stock market correction appears to be a payback for the extraordinary actions taken to stabilize the economy in 2008-2009. Most models (including the Model T) indicated the stock market should have gone lower than it did. While the magnitude of this correction was unexpected, the stock market dip is not a big concern. The Model T indicates that the stock market will be back to its July 2011 peak in Q3 of 2012 – a long, slow, climb.

So which of the economic titans is going to be correct? I have stated in previous posts how this unique economic situation, with the extreme actions of the Fed, has caused usually reliable indicators to be wrong. Could this be happening to the stellar model of ECRI? We will soon find out. The Model T, which is supposed to be a predictive model, is currently moving in tandem with the stock market. It is possible that the ECRI model is reflecting what is currently happening (a slowing economy) instead of a future slower economy. And Buffet? You don’t make billions by being very wrong in key situations.

My Call

My panel of economic experts is forecasting GDP growth of 1.9% in Q1, 2012 and 2.8% in Q2. However, the panel has been too optimistic by 1.5 to 2 points for the past several quarters. Therefore, expect a GDP of near 0% (could even be negative) in Q1, 2012 and near 1% in Q2. Not technically a recession, but oh so close. This would mean that Buffet would be correct, but there would be no reason to celebrate.

I am working on a new model based on non-commercial transportation (call in Model-T Jr.). This model says we are on the edge of a recession, but the next data inputs will determine if it indicates recession or just near 0% growth. The Model T is now predicting moderate, instead of robust, growth in 2012.

The good news is that the economy is moving so slow, we don’t have very far to fall. That’s right; the recovery has been so anemic we can’t even have a decent recession! If we do have a recession, it will be like when Dick Cheney has a mild heart attack. Yes it’s bad, but we will hardly notice it and may not even feel a thing.

Fred Sanford -- The Big One!